About the Company

Hester Biosciences Limited (HBL) is a publicly-traded Indian company headquartered in Ahmedabad, Gujarat. Hester is an animal and poultry vaccine manufacturing company with plants situated in Gujarat and Nepal. The company is India’s second-largest poultry vaccine manufacturer currently with a 30% market share of the poultry vaccine market in the country.

Q1FY21 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
  Q1FY21 Q1FY20 YoY % Q4FY20 QoQ %
Sales 39 44 -11.36% 42 -7.14%
PBT 10 15 -33.33% 7 42.86%
PAT 8 10 -20.00% 5 60.00%

 

Consolidated Financials (In Crs)
  Q1FY21 Q1FY20 YoY % Q4FY20 QoQ %
Sales 40 45 -11.11% 48 -16.67%
PBT 8 13 -38.46% 6 33.33%
PAT 5 8 -37.50% 5 0.00%

 

Detailed Results

    1. The company had a dismal quarter with 11% decline in consolidated revenues and a 38% fall in PBT at a consolidated level.
    2. PAT fell 37% YoY.
    3. The company made an equity investment into Texas Lifesciences of Rs 82.5 Lacs in Q1.
    4. The EBITDA margin was at 34.25% in the current quarter vs 39.84% a year ago. ROE has reduced to 14.48% in Q1FY21 from 20.23% a year ago.
    5. The revenue growth in Q1 for the various segments is:
      1. Poultry Healthcare: Down 11% YoY
      2. Animal Healthcare: Up 6% YoY
      3. Other: Down 11% YoY
    6. The poultry healthcare still remains the biggest contributor at 77% contribution to revenues.
    7. Gross margins were impacted due to the changed product mix. Low-value necessary products and vaccines were sold more rather than high-value products.
    8. The company is looking to put more focus on health products as they have a bigger market than vaccines.
    9. The National Animal Disease Control Program of the Government of India is expected to be implemented for the Brucella vaccine in the next few months (which was supposed to have been started from Feb 2020). Hester is one of the two suppliers for this vaccine.
    10. Hester Nepal saw a dramatic fall in revenues due to lockdown in Nepal and FAO not tendered for PPR vaccines in Q1.
    11. Texas has raised INR 15 million through a rights issue to acquire assets for increasing its production capacity.
    12. The Texas Lifesciences unit also saw flat YoY revenue growth.
    13. Hester Tanzania had a good quarter with sales of Rs 69.3 Lacs vs Rs 31.6 lacs a year ago. Profits for the unit rose to Rs 37.8 lacs vs Rs 2.5 lacs a year ago.

Investor Conference Call Highlights

  1. The company has reduced expenses mainly on travel.
  2. The company is looking to start an animal trial for the COVID-19 vaccine in November or December.
  3. Tenders for FAO orders in Nepal have started coming in.
  4. The company has a diagnostics lab in Anand for sample taking for the health of flocks and cattle and it is looking to set up another such lab in Tanzania in the near future.
  5. The company doesn’t have any plans to enter into the companion animal space as it is still very small in India as compared to the West and the USA.
  6. The company is looking to get into FMD space but has not had any concrete plans to do so yet.
  7. The gross debt in India is at Rs 39 Cr as of Q1FY21.
  8. Receivables have remained roughly the same as in Q4.
  9. The company expects the level of Rs 125 Cr of poultry product sales to be the bottom and sales are expected to get much better than this in the future.
  10. Exports form 11% of sales in Q1. This is expected to rise going forward.
  11. The product selection in health products is expected to have minimal impact on margins as per the management.
  12. The company expects to make up for the loss of sale from international orders for Brucella in the rest of the year.
  13. The central tender to supply Brucella and PPR vaccines is fully secured.
  14. There have no salary cuts for the company but it has managed to reduce travel and administrative costs as part of cost-cutting measures.
  15. The opportunity for health products is immense for the company as per the management. Each big company in this space has at least 2-3 times sales in health products as in vaccines while the case in opposite for Hester with vaccine sales at 2-3 times health products sales. This is also the case for domestic players like Virbac, Zoetis, and Zydus.
  16. The main reason for the big rise in Tanzania profits is the increase in product prices and profitability in Africa as compared to India.
  17. The full sales capacity for Brucella for Hester currently is around Rs 40 Cr per year.
  18. The company has no issues from the uncertainty of tenders from FAO as the demand for PPR remains stable and the countries that need are directly placing orders rather than wait to get the vaccine through tenders.
  19. The world requirement for FAO is around $500 million per year for vaccines and the company is targeting around 10% of that figure.
  20. The company supplies to almost 80% of PPR state tenders and 70% of Brucella tenders in India.
  21. Brucella is a onetime only vaccine while PPR and Newcastle vaccines need to be repeated multiple times for each animal.

Analyst’s View

Hester Bio has had a tough time this year with the recession in the poultry industry and delays in the animal vaccine tenders. The growth of Nepal has stalled due to the lockdown and the absence of FAO tenders. On the other hand, Tanzania has seen good profits due to the rise in prices in the continent. The management has done well to clearly identify the growth path ahead with the focus to expand into the health products division which is still very small for the company. It remains to be seen how long the slowdown in the domestic poultry market continues and whether the industry will bounce back as soon as the company expects. Nonetheless, given their excellent technical expertise and the future potential of its international operations and its upcoming foray into animal health products, Hester Biosciences remains a good small-cap stock to watch out for.


 

Q4FY20 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q4FY20 Q4FY19 YoY % Q3FY20 QoQ % FY20 FY19 YoY%
Sales 41.7 50.3 -17.10% 44.8 -6.92% 172.3 174.3 -1.15%
PBT 6.5 16.0 -59.38% 10.6 -38.68% 41.2 59.8 -31.10%
PAT 5.0 12.4 -59.68% 7.7 -35.06% 31.2 43.8 -28.77%

 

Consolidated Financials (In Crs)
Q4FY20 Q4FY19 YoY % Q3FY20 QoQ % FY20 FY19 YoY%
Sales 48.4 55.5 -12.79% 51.0 -5.10% 189.6 185.3 2.32%
PBT 6.2 17.7 -64.97% 14.9 -58.39% 41.3 56.9 -27.42%
PAT 4.8 14.1 -65.96% 11.9 -59.66% 31.0 40.7 -23.83%

Detailed Results

    1. The company had a dismal quarter with 13% decline in consolidated revenues and a 65% fall in PBT at a consolidated level.
    2. PAT fell 66% YoY.
    3. The EBITDA margin was down 13.86% YoY to 24.79% in the current quarter while the net profit margin fell 13.27% YoY to 12.08%. Roe has reduced to 9.85% in Q4FY20 from 27.59% a year ago.
    4. The revenue growth in Q4 for the various segments is:
      • Poultry Healthcare: Down 15% YoY
      • Animal Healthcare: Up 4% YoY
      • Other: Down 39% YoY
    5. The poultry healthcare still remains the biggest contributor at 73% contribution to revenues.
    6. The poultry health division declined 5% YoY for FY20. The division was directly impacted due to the poultry industry which remained in a recessionary condition throughout the year.
    7. In Animal Healthcare, the trade business grew 6% YoY in FY20 but purchases by various state governments got delayed which resulted in lower revenues than expected.
    8. Exports grew by 63% in FY20.
    9. The company has set up a Manufacturing Science & Technology Division to focus on implementing innovation and best practices and solutions for vaccine manufacturing. One of the objectives of this division is to work on the improvisation of production yields and performances of the vaccines in the field.
    10. The National Animal Disease Control Program of the Government of India is expected to be implemented for the Brucella vaccine (which was supposed to have been started from Feb 2020). Hester is one of the two suppliers for this vaccine.
    11. Hester Nepal saw phenomenal YoY revenue growth of 88% for Q4. FY20 revenues for this unit rose 109% YoY.
    12. Profit from Hester Nepal for Q4 grew 113% YoY bringing the total profit for the year to Rs 3.93 Cr which is the first year of profit for Hester Nepal.
    13. The Texas Lifesciences unit also saw a YoY revenue growth of 57.6% in Q4 and 53.3% in FY20.
    14. Hester Tanzania had a good quarter with sales of Rs 69.5 Lacs. Total Sales for the unit in FY20 was Rs 2.78 Cr vs Rs 23.4 Lacs in FY19.
    15. The company has announced a dividend of Rs 6.6 per share.

Investor Conference Call Highlights

  1. The management stated that the poor performance in Q4 was mainly due to the crash in the poultry industry which was hit hard by the rumours of COVID-19 transmission through livestock.
  2. The tenders for animal health vaccines were again delayed but the company has indeed received an allocation for Brucella. These orders for Brucella vaccines are expected to come in the next few months.
  3. The company managed to hold on to its market share of 35% in the poultry vaccine market.
  4. The company expects exports to double in FY21 as all disruptions in shipping and logistics due to COVID-19 get resolved.
  5. The company has started the registration process into Tanzania, Uganda, Kenya and other neighbouring countries through a common registration. The company expects this to be done in the next year.
  6. The company has made a big shipment to Hester Tanzania of the PPR vaccine and expects sales to commence in the next 60 days.
  7. The management has stated that the company will be able to come out with a COVID-19 vaccine by the end of 2021 at the earliest.
  8. Although the home consumption of poultry has taken a minor blip, the major damage to the overall demand for poultry has come from the catering industry which accounts for roughly 505 of overall demand.
  9. The management expects feed manufacturers to recover in 4-5 months’ time.
  10. The management has reassured that despite the spike in inventory, there isn’t any danger of losses from expired inventory at hand.
  11. The company is seeing good potential in the poultry segment for West and East India and on the livestock segment in North and South India.
  12. PPR procurement remains at the hands of individual states while Brucella and FMD procurement has shifted to the centre.
  13. In Hester Nepal, 90% of sales are from exports while the remaining 10% is from domestic sales.
  14. The company will not expand its sales team currently and will focus on consolidating the expanded team and bring in operational efficiency before looking to add on to it.
  15. The management has admitted that even with the size of large integrators like Godrej and Venky’s increasing through integrating small farmers, the market for the company is still the same as long as the volume of poultry on the ground does not go down.
  16. The management has stated that the core competency required to make human vaccines is not too different from animal vaccines and Hester is already using the Paramyxovirus virus, which is ordinarily used for poultry vaccines, as a platform to develop its COVID-19 vaccine.
  17. The company will be proceeding cautiously in expanding the team in Africa. It will set up distributors who at a later date will be integrated back into the company directly. This is how it went ahead in Tanzania and now the exclusive distributor for the country is part of the company.
  18. The company is not expecting much debtor defaults in India and bad debt so far has been limited to 0.6%.
  19. In R&D, the company is currently developing diagnostic kits for poultry. It is also looking to develop a thermotolerant PPR vaccine as well a nasal mechanism for delivery of PPR vaccine. In poultry, the company is looking to combine a Newcastle and a Gumboro vaccine into a 2in1 shot.
  20. In Hester Africa, the company is looking to develop 16 types of different vaccines which are for Africa only.
  21. The company already has a few products which it has not registered yet in Africa since the markets are too small for these products. Once the markets expand, the company can register and start selling these as well.
  22. In Poultry, the company has a full range of vaccines and is mainly working on improving production efficiency and other operational details.
  23. The management expects the Brucella tender to be almost Rs 100 Cr per year and PPR to be Rs 12-15 Cr per year.
  24. The management has stated that the company can easily double the capacity in Hester Nepal with any new land acquisition and with only an investment of Rs 5 Cr into plant and machinery. Overall the company has enough plot to increase capacity up to 4-5 times.
  25. The market size for FMD in India is expected to be Rs 1000 Cr. There 3 main competitors in this space which are Indian Immunologicals, Brilliant and Biovet.
  26. The management expects exports to overtake domestic sales in at least 2-3 years.
  27. In FY20, the sales from Brucella tender were around Rs 4-5 Cr while sales from PPR tender were less than Rs 10 Cr.

Analyst’s View

Hester Biosciences has been a darling of small-cap picks in the recent past. The company has had a tough time this year with the recession in the poultry industry and delays in the animal vaccine tenders. The growth of their international units has been very good and has helped shore up most of the shortfall in the domestic market. The management has done well to clearly identify the growth path ahead for the different vaccine divisions for the company and for foraying into the human vaccine with a potential COVID-19 vaccine in collaboration with IIT Guwahati. It remains to be seen how long the slowdown in the domestic poultry market continues and whether the industry will bounce back as soon as the company expects. Nonetheless, given their excellent technical expertise and the future potential of its international operations and its foray into human vaccines, Hester Biosciences remains a good small-cap stock to watch out for.


 

Q3 2020 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q3FY20 Q3FY19 YoY % Q2FY20 QoQ % 9MFY20 9MFY19 YoY%
Sales 44.85 42.11 6.51% 42.02 6.73% 130.62 123.97 5.36%
PBT 10.61 16.47 -35.58% 9.46 12.16% 34.72 43.71 -20.57%
PAT 7.73 11.86 -34.82% 8.69 -11.05% 26.22 31.47 -16.68%

 

Consolidated Financials (In Crs)
Q3FY20 Q3FY19 YoY % Q2FY20 QoQ % 9MFY20 9MFY19 YoY%
Sales 50.99 45.99 10.87% 44.89 13.59% 141.22 129.77 8.82%
PBT 14.95 16.69 -10.43% 7.11 110.27% 35.08 39.14 -10.37%
PAT 11.95 12.43 -3.86% 6.2 92.74% 26.24 26.62 -1.43%

Detailed Results

    1. The company had a modest quarter with 11% growth in consolidated revenues and a 10% fall in PBT at a consolidated level.
    2. PAT fell 4% YoY mainly on account of the new reduced tax regime.
    3. The EBITDA margin was down 14.29% YoY to 29.93% in the current quarter while the net profit margin fell 10.76% YoY to 17.78%.
    4. The main reason for the fall in margins in Q3 is the change in product mix. The management had taken the decision to derive sales from fast-moving products rather than high margin products. The product mix has already started rolling back to a more profitable level and this should be evident in the next quarter.
    5. The revenue growth for the various segments is:
      • Poultry Healthcare: Up 6.25% YoY
      • Animal Healthcare: Up 17.5% YoY
      • Other: Down 21.9% YoY
    6. The poultry healthcare still remains the biggest contributor at 69% contribution to revenues.
    7. In 9MFY20, the poultry healthcare industry was adversely affected due to the high cost of feed from the spike in maize prices. The industry has come out of this crisis and a major boost in sales is expected in the near future.
    8. In Animal Healthcare, the trade business grew 29% YoY in the 9M period but purchases by various state governments got delayed which resulted in lower revenues than expected.
    9. The company has increased its credit cycle which has resulted in increased finance costs. The credit cycle is expected to return to normalized levels by the end of the year.
    10. The company has done aggressive hiring, particularly in the sales and marketing side. This was evident in the rise in employee benefit expenses. The management expects this to bear fruit in the coming quarters.
    11. Hester Nepal saw phenomenal YoY revenue growth of 154% for Q3. 9M revenues for this unit also rose 157% YoY. Exports (FAO Tenders) and domestic sales grew 37.34% YoY and 7 times respectively.
    12. The Nepal unit is expected to breakeven by the end of the year.
    13. The Texas Lifesciences unit also saw a YoY revenue growth of 23% in Q3 and 51.8% in 9MFY20.
    14. Hester Tanzania had a good quarter with sales of Rs 89.6 Lacs. Total Sales for the unit in 9MFY20 was Rs 2.08 Cr vs Rs 51.5 Lacs in 9MFY19.
    15. Hester entered into a technical collaboration agreement with Novapharma, Egypt. The broad terms of the agreement were:
      • Hester would offer technology to Novapharma to manufacture animal vaccines in Egypt
      • Hester would have exclusive international marketing rights for the vaccines manufactured at Novapharma. Through this arrangement, Hester would have access to the Avian Influenza Vaccine which is currently not manufactured by Hester at any of its locations. This arrangement does not undermine the capacity utilization of Hester India or of Hester Nepal or of Hester Africa.

Investor Conference Call Highlights

  1. The management expects good business from the tender procurement of Brucella and PPR vaccines from state governments.
  2. The domestic sales of the company have been slow in recovery but the export sales of the company have helped cover the slack.
  3. The management had taken the decision to change product mix towards fast-moving products to maintain its sales targets and from January onwards, the company will shift back to high margin products in its product mix.
  4. The company is reasonably confident in the Brucella tender which is operated by the central government. The company is one of the two bidders for this tender. The company expects to receive the verdict on this by the end of February.
  5. The construction in the Hester Africa plant is on schedule and the company has already invested its full equity in the project already.
  6. The management expects the company to come back on its growth track by Q1FY21 at the latest.
  7. The management has clarified that there is no investment required in the agreement with Novapharma for Hester India.
  8. The avian influenza vaccine production with Novapharma is expected to start in 2.5 years. Till then the company will be getting technology transfer fees from Novapharma.
  9. The pending CAPEX for the company is around Rs 25 to 30 Cr in Hester Africa.
  10. The gross debt of the company was Rs 95.48 Cr for the company while the cash position stood at Rs 22 Cr on 31sy December 2019.
  11. The management is yet to decide whether to expand the existing capacity for Brucella production or use the existing capacity to address the additional demand for the product. It has assured that any expansion will not take more than 6 to 8 months.
  12. The management has mentioned that gross margins from the Brucella orders from the government will typically have lower margins than the company’s existing margin profile and may cause overall margins to fall by 2-3%.
  13. Brucella business tendered by the government for the next 12 months is expected to be around Rs 60 Cr. PPR business in the same period is expected to be Rs 10-15 Cr.
  14. The market opportunity for the Brucella and PPR vaccines is around Rs 800 Cr per year. This is based on the assumption that the Brucella vaccine should account for at least 30% of the government’s spending target of Rs 13000 Cr in the next 5 years into Brucella.
  15. The management has mentioned that the company will get into FMD in the long run. Currently the prices for FMD vaccines is very low and thus the company does not make any.
  16. The key markets that the company wants to target with the avian flu vaccine are South East Asia, Middle East and Africa.
  17. The management expect at least 4 years for the Hester Africa unit to start yielding revenues of Rs 150 to 200 Cr per year.
  18. The management has mentioned that in the PPR vaccine there are a total of 3 competitors for the tender offer.

Analyst’s View

Hester Biosciences has been a darling of small-cap picks in the recent past. The company has experienced a dip in its growth path in 9MFY20 mainly due to rising feed prices for poultry and the delay of certain tender contract payments. The growth of their international units has been very good and has helped shore up most of the shortfall in the domestic market. The management remains convinced that they will be able to achieve its annual targets and has thus maintained its sales team growth. It remains to be seen how long the slowdown in the domestic poultry market continues and whether the company will be able to win the animal vaccine tenders and capitalize on the market opportunity. Nonetheless, given their excellent technical expertise and the future potential of its international operations, Hester Biosciences remains a good small-cap stock to watch out for.


Q2 2020 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q2FY20 Q2FY19 YoY % Q1FY20 QoQ % H1FY20 H1FY19 YoY%
Sales 42.02 42.83 -1.89% 43.74 -3.93% 85.77 81.86 4.78%
PBT 9.46 13.84 -31.65% 14.65 -35.43% 24.12 27.24 -11.45%
PAT 8.69 9.93 -12.49% 9.79 -11.24% 18.49 19.62 -5.76%

 

Consolidated Financials (In Crs)
Q2FY20 Q2FY19 YoY % Q1FY20 QoQ % H1FY20 H1FY19 YoY%
Sales 44.89 43.25 3.79% 45.33 -0.97% 90.23 83.78 7.70%
PBT 7.11 10.43 -31.83% 13.02 -45.39% 20.13 22.45 -10.33%
PAT 6.2 5.89 5.26% 8.08 -23.27% 14.29 14.19 0.70%

 

Detailed Results

    1. The company had a dismal quarter with a 4% growth in consolidated revenues and a 32% fall in PBT at a consolidated level.
    2. PAT grew 5% YoY mainly on account of the new reduced tax regime.
    3. The EBITDA margin was down 8.66% YoY to 28.38% in the current quarter while the net profit margin fell 2.33% to 21.02%.
    4. The revenue growth for the various segments is:
      • Poultry Healthcare: Down 9.3% YoY
      • Animal Healthcare: Down 18.7% YoY
      • Other: Up 210% YoY
    5. Poultry healthcare still remains the biggest contributor to a 65% contribution to revenues.
    6. The poultry healthcare industry was adversely affected due to the high cost of feed from the spike in maize prices. The high cost of feed has forced farmers to divert liquidity away from health projects to maintaining feed levels.
    7. In Animal Healthcare, the trade business grew 25% but purchases by various state governments got delayed which resulted in lower revenues than expected. Government purchases for animal vaccines should go as per forecasts, to be completed before the end of the financial year.
    8. The working capital cycle has increased for the company which has resulted in increased finance costs.
    9. The company has done aggressive hiring, particularly in the sales and marketing side. This was evident in the employee benefit expenses which has risen 39% YoY.
    10. Hester Nepal saw phenomenal YoY revenue growth of nearly 30 times for Q2. H1 revenues for this unit also doubled YoY to Rs 3.91 Cr in H1FY20. Exports (FAO Tenders) and domestic sales grew 2 times and 10 times respectively.
    11. The Texas Lifesciences unit also saw YoY revenue growth of 66.29% in Q2 and 74.93% in H1.
    12. Hester Tanzania had a good quarter with sales of Rs 88 Lacs. Total Sales for the unit in H1FY20 was Rs 1.2 Cr vs Rs 28 Lacs in H1FY19.

Investor Conference Call Highlights

  1. The management remains confident that they will be able to achieve their yearly guidance targets despite the poor performance in the current quarter.
  2. The management has stated that the Africa plant construction is going on schedule and they are even looking to move up their first vaccine launch there.
  3. In Hester Tanzania, the company has established its supply chain on the ground and the company is continuing with product registrations. The company has already registered its PPR vaccine.
  4. The company has hired 60 people in technical sales this year so far.
  5. The scheduled time for the release of the first product in Hester Tanzania is December 2020. The management has stated that they expect 3 years of sales to reach Rs 50 Cr in sales. Total Capex done in the unit till now is Rs 36 Cr and the total Capex left to be done is around Rs 64 Cr. The pending contribution from Hester is around Rs 12-15 Cr and the Gates foundation is expected to be adding around $ 7 million to this project.
  6. The company also has a product for blue tongue fever specifically in Africa.
  7. The key R&D focus areas for the company are diagnostics and recombinant vaccines for poultry. The company is currently working on 3 recombinant vaccines at the moment.
  8. The company is only manufacturing classical swine fever vaccines in Nepal as it is mostly used for exports to southeast asian countries. The company is expecting sales of about $ 1 million from this product in the first year and they are currently working on the registration processes in their target export markets.
  9. The management has maintained that they have made the hires mainly to increase penetration and to focus on rural expansion. The company will continue to focus on poultry and large animal diseases.
  10. The export revenue from H1 is Rs 12 Cr.
  11. The company provides a Brucella vaccine to all the state govt in India. The government has announced a nationwide Brucella immunization plan and Hester is a key part of it.

Analyst’s View

Hester Biosciences has been a darling of the stock market in the recent past. The company has experienced a dip in its growth path in the current quarter mainly due to rising feed prices for poultry and the delay of certain tender contract payments. The growth of their international units has been very good and has helped shore up most of the shortfall in the domestic market. The management remains convinced that they will be able to achieve their annual targets despite the setback in the current quarter. It remains to be seen how long the slowdown in the domestic poultry market continues and how the company will cope with it given that this is its biggest sales category. Nonetheless, given their excellent technical expertise and the future potential of its international operations,  Hester Biosciences remains a good small-cap stock to watch out for.

 


Q1 2020 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q1FY20 Q1FY19 YoY % Q4FY19 QoQ %
Sales 43.7 39 12.05% 50.3 -13.12%
PBT 14.65 13.4 9.33% 16 -8.44%
PAT 9.79 9.68 1.14% 12.37 -20.86%
Consolidated Financials (In Crs)
Q1FY20 Q1FY19 YoY % Q4FY19 QoQ %
Sales 45.33 40.52 11.87% 58.2 -22.11%
PBT 13 12 8.33% 16.93 -23.21%
PAT 8.08 8.3 -2.65% 13.5 -40.15%

 

Detailed Results

    1. The company had a muted quarter with 11% growth in revenues but a 3% fall in profits at a consolidated level.
    2. The EBITDA margin was up 1.27% YoY to 39.84% in the current quarter while the net profit margin fell 2.22% to 23.09%.
    3. The revenue growth for the various segments is:
      • Poultry Healthcare: Up 1.99% YoY
      • Animal Healthcare: Up 53.58% YoY
      • Other:                         Up 81.36% YoY
    4. The poultry healthcare still remains the biggest contributor at 79% contribution to revenues.
    5. The poultry healthcare industry was adversely affected due to the high cost of feed from the spike in maize prices. The high cost of feed has forced farmers to divert liquidity away from health projects to maintaining feed levels.
    6. The company maintains that animal healthcare division has met their internal targets.
    7. Hester Nepal saw YoY revenue growth of 64%. The supply of PPR vaccines against global tenders has contributed towards the majority of this revenue growth.
    8. The company has gained marketing authorization for 12 vaccines which should help boost domestic sales in Nepal.
    9. The Texas Lifesciences unit also saw YoY revenue growth of 87.65%. The company is expanding capacity at this facility to cater to increasing demand.

Investor Conference Call Highlights

  1. In Hester Africa, the construction work is running with a little delay of 10-15 days due to weather problems. In terms of costs, they are running as expected with no overruns.
  2. The company is working hard on setting up their distribution network in Africa.
  3. The overall working capital cycle has reduced to 74 days from 87 days a year ago.
  4. The fixed asset turnover ratio has risen to 1.7 times from 1.57 times a year ago.
  5. On the domestic front, the company is looking to ramp up sales activities in North and North East India.
  6. The Africa project is on track to roll out the first product by the beginning of 2021.
  7. The capital cost for the project is Rs 128 Cr where the debt to equity mix is 8:10. The company has raised 10 million loans from the Bill and Melinda Gates Foundation at an interest rate of 3% and the company has put up 4 million as equity and has received 4 million grant.
  8. The company can supply the Indian market out of Nepal but it is not looking to do so currently.
  9. The management expects exports to provide a bigger boost than last year when domestic sales had helped keep revenues up.
  10. The management expects to achieve at least 20% growth in domestic sales and more than 80% growth in the export side.
  11. The company expects the government initiative on disease eradication for cattle to have a good positive impact on their animal healthcare sales. Although the company is only focussing on Brucella from the list of diseases listed, they are reasonably confident of this bringing in good sales.
  12. The company expects the budget for Brucella alone to be around Rs 1000 Cr cumulatively over 5 years and there are only 2 other competitors in this line, namely Sanvita and Indian Immunologicals.
  13. The company also has capabilities to pursue the FMD disease in the list but they are refraining from doing so as pricing in this section is very poor as compared to the international market for this disease.
  14. In the Veterinary Social Business, the company is operating in Jharkhand, Chhattisgarh, Odisha, UP and Bihar. They have had encouraging results from despite their small turnover mainly on the fact that it is helping address a big rural issue and providing employment to a lot of people in the rural areas to spread their message.
  15. The total turnover from VSB is Rs 1.08 Cr.
  16. The management feels that the traction from tenders for Hester Nepal is set to improve in the latter part of the financial year.
  17. The company is looking to launch a few vaccines for large animals on the back of the encouraging response from the government through the animal healthcare measure taking place. These vaccines are not unique and are already there in the market, but they will help the company expand its product portfolio.
  18. The company’s CFO Jigar Shah is set to leave the company to set up his own consultancy practice. This move seems to be very cordial and should not affect the company negatively.
  19. The capacity expansion for the Texas unit should not cost more than 4-5 Cr according to management.
  20. The management has said that the margins from the large animal vaccines is more or less similar to poultry healthcare margins and the main difference here comes from the fact that the large animal healthcare is primarily driven by tenders which results is lower selling costs as compared to direct customer sales.
  21. The company has only PPR vaccines on their thermostable list and they do not plan to add any more to it currently.
  22. The few new vaccines that the company is planning to add this year are HAS, blackwater and Anthrax. The company is also looking at other diseases as well.

Analyst’s View

Hester Biosciences has been one of the most consistent small-cap stocks in the past few years. The company has experienced a small blip in their growth path in the current quarter mainly due to rising feed prices for poultry. But the growth of their non-poultry divisions has been very encouraging and the push from the Indian government for domestic animal immunization should spur the growth of these small divisions in the future. The company is still over-dependent on the poultry business and any protracted slowdown in this sector will be harmful to the company. It remains to be seen how fast they can grow their animal healthcare division to combat the cyclical nature of the poultry business. However, given the past performance of the company and their good quality products and maintenance of margins, Hester Biosciences is a good stock to watch out for.

 


 

Q4 2019 Updates

Financial Results & Highlights

 Standalone Financials (In Crs)
Q4FY19 Q4FY18 YoY % Q3FY19 QoQ % FY19 FY18 %  Change
Sales 50.3 37.8 33.07% 42.1 19.48% 174.3 137.1 27.13%
PBT 16 9.4 70.21% 16.5 -3.03% 59.75 43.7 36.73%
PAT 12.37 9 37.44% 11.86 4.30% 43.85 30.56 43.49%

 

  Consolidated Financials (In Crs)
FY19 FY18 %  Change
Sales 185.2 138.9 33.33%
PBT 56.85 36.1 57.48%
PAT 40.69 23.06 76.45%

Detailed Results

    1. Q4 results were spectacular with revenues and profits both up 33% and 37% YoY.
    2. FY19 revenues and profits were phenomenal with a YoY growth of 27% and 43% respectively.
    3. The segmental revenue growth for FY19 are as follows:
      • Poultry Healthcare: Up 14.7% YoY
      • Animal Healthcare: Up 98.7% YoY
      • Others: Up 44.3% YoY
    4. Domestic revenues grew 31.3% YoY for FY19 while exports grew only 8.9% YoY.
    5. Overall, net profit margin rose 3.03% in FY19 as compared to FY18.
    6. Hester Nepal saw an upsurge in revenues with FY19 revenues coming in at Rs 9 Cr as compared to Rs 1.4 Cr last year. The losses for this division were down to Rs 3 Cr from Rs 7.3 Cr last year.
    7. Texas Life sciences also saw rise in revenues with FY19 revenues coming at Rs 8.35 Cr as compared to Rs 1.5 Cr last year.

Investor Conference Call Highlights

  1. The company is reducing its dependence on their dominant division of poultry healthcare. They have expanded their animal healthcare division to increase its revenue contribution to 21%.
  2. The company is targeting equal revenue contributions from their poultry and animal healthcare divisions in the long term.
  3. The management acknowledges that the export revenues have been below expectations due to distribution issues for their exports. They made up for this shortfall with the spurt in domestic revenue growth.
  4. In Hester Nepal, PPR tenders are coming but they are growing slowly. The company expects it to grow steadily and contribute to exports in the near future.
  5. In Hester Africa, the proposed constructions are going on as expected and by 2020 end they hope to come up with the first products made in this facility.
  6. The company is continuing to shift most of the animal healthcare manufacturing to Texas Life sciences unit. 86% of the production of the facility is bought by Hester Biosciences.
  7. Working capital cycle fell to 73 days in Q4FY19 from 87 days in Q4FY18.
  8. Consolidated debt for the company has risen to Rs 81.66 Cr from Rs 60 Cr last year.
  9. The company expects the Africa should be yielding Rs 200 Cr per year at full capacity. They are also expecting same margin levels as the India operations.
  10. The management accepts that it is proving difficult for the company to achieve inorganic growth through acquisitions.
  11. The company is also looking to expand domestic capacity in the near future.
  12. They see a lot of room for growth in the animal healthcare segment and are targeting at least growth of 50% YoY in this division. The company expects 4-5 years for this segment to match the poultry segment.
  13. The company is targeting breakeven for the Nepal division for the next financial year.
  14. For veterinarian social business area, the company hopes to grow it to 2-3 times of its current size.
  15. The company is stressing that their strengths of animal vaccines and deep distribution network should help them compete in a largely fragmented market.
  16. The management will focus largely on the private market in Tanzania as opposed to the tender orders in Nepal. The company has also created Hester Tanzania to set up a deep distribution network to reach as many end farmers as possible.
  17. The company states that the revenue growth in poultry segment has been largely driven by rise in volumes.
  18. The company maintains that it will be pushing for revenue growth while preserving margins. The management have a clear strategy that they will not compromise on margins for revenue growth in the future.

Analyst’s View

Hester Biosciences has been one of the most consistent small cap stocks in the past few years. They have shown consistent growth in the last financial year and have been able to nearly double their animal healthcare business in this period. However, their Nepal unit is yet to break even. Moreover, the export growth for the company has been dismal at just 8% YoY. Nonetheless, the resounding growth in the domestic segment and the company’s commitment to not repeat the mistakes of Nepal in their African business makes Hester a compelling bet for anyone looking to invest in animal healthcare business, particularly in Asia and Africa in the near future. However, valuation of the stock is not cheap. At 30 times earnings, 8 times sales and 7 times book value, the valuation appears to be stretched thought. Nevertheless, Hester is one company, one cannot ignore.

 


 

 

 

 

 

 

 

 

 

Q3 2019 Updates

Financial Results & Highlights

Standalone Financials (In Crs)

Q3FY19

Q3FY18 YoY % Q2FY19 QoQ % 9M FY19 9M FY18

9M% Change

Sales

42.11 32.3 30.37% 42.82 -1.66% 123.97 99.32

24.82%

PBT

16.47 10.92 50.82% 13.84 19.00% 43.72 34.27

27.58%

PAT

11.86 6.5 82.46% 9.93 19.44% 31.47 21.54

46.10%

Detailed Results

    1. Hester delivered another phenomenal quarter with more than 30% growth in revenues YoY.
    2. The quarterly PBT and PAT were up 51% and 82% YoY respectively.
    3. This is mainly attributed to a better product mix, better inventory management and reduction in production costs.
    4. The company is investing in forming an elaborate marketing and distribution network in Nepal.
    5. It is also starting aggressive marketing efforts and product registrations in many countries.
    6. The Texas Lifesciences unit received WHO-GMP certification in October ’18. This should help the company in direct registration of Texas Lifesciences products in international markets.
    7. The company has injected Rs 12.7 Cr as equity contribution in Hester Biosciences Africa in the period of 9MFY19.
    8. In segment growth, poultry segment grew by 13,6% while animal healthcare segment grew by 126% YoY in the current quarter.
    9. In terms of geography, domestic revenues saw growth of 32.68% YoY in Q3FY19 while exports grew 27.88% in the same period.
    10. The gross profit margin, EBITDA margin and net profit margin were up 5%, 4.72% and 8.18% YoY respectively for the current quarter.

Investor Conference Call Highlights

  1. In the period of 9M19, the company has already achieved 94% of their sales target set at the start of the financial year.
  2. The company is investing heavily to establish a strong marketing and distribution network in Nepal.
  3. The company is slowly transferring their health products which are non-vaccines to be manufactured at the Texas Lifesciences facility.
  4. The company has gone ahead with registration of its products in various international markets and to start marketing a few products from the Texas Lifesciences unit in the whole of the African continent.
  5. As part of their Hester Africa project, Hester is setting up a manufacturing facility in Tanzania to manufacture vaccines against diseases found mainly in the African continent.
  6. The sale of products from this facility should commence by the end of 2020.
  7. The company is targeting immunization of backyard poultry, cattle, sheep and goats in rural India through its veterinary social business division. This shall open up their addressable market by at least 50%.
  8. The ROE and ROCE for the company stood at 28.34% and 31.13% respectively for the current quarter.
  9. The consolidated debt for the company stands at Rs 68.77 Cr.
  10. For their Nepal plant, the company maintains that they will need at least Rs 15 Cr of annual sales to stay breakeven on that plant.
  11. The company has already acquired permission to conduct a QIP and will proceed forward to do so if management exhausts avenues for organic growth.
  12. The management expects sales of Rs 40-50 Cr from the Nepal plant when it is acting at full capacity.
  13. The company is betting big in the animal healthcare sector mainly on the basis on their differentiated product offerings especially their vaccines.
  14. Currently the capacity utilization at the Indian facility is at 70%. The Nepal facility has very low capacity utilization at the moment.
  15. The company has high hopes for the Tanzanian plant as the captive domestic market for animal healthcare is one of the largest in the world.
  16. The company expects to cover 10 states in India in the next 2 years. The number of states is small here mainly because the company wants deep penetration of marketing and distribution into the rural regions of each state.

Financials

Particulars Mar-09 Mar-13 Mar-16 Mar-18 TTM
Sales

30.16

65.11 100.89 134.78

159.85

Operating Profit

14.79

22.45 33.67 49.59

60.05

Other Income

0.09

0.2 0.6 1.88

1.94

Depreciation

3.84

4.39 5.73 5.45

6.06

Interest

2.89

3.22 3.69 2.32

2.76

Profit before tax

8.15

15.03 24.85 43.71

53.17

Tax

3.41

5.34 5.63 13.15

12.68

Net profit

4.74

9.69 19.22 30.56

40.48

 

Particulars Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18
Dividend Payout

27.43%

25.87% 23.95% 7.32% 17.54% 16.85% 18.87% 18.16% 18.08% 27.85%

OPM

49.04% 42.93% 43.04% 39.18% 34.48% 36.70% 28.52% 33.37% 33.40%

36.79%

 

Particulars Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18
CFO

7.77

16 7.61 12.67 13.42 11.39 20.37 18.64 27.55 31.37
CFI

-3.38

-3.46 -6.21 -7.37 -17.52 -13.99 -11.92 -5.68 -15.49 -26.32

CFF

-4.39 -12.23 -1.45 -5.03 3.94 2.54 -5.21 -11.92 -5.6

-5.33

Net CF

0 0.31 -0.05 0.27 -0.16 -0.06 3.23 1.04 6.46

-0.28

 

Accreditation from Bill Gates

One priority is animal health. Diseases can wipe out flocks and herds, driving smallholders even further into poverty. For example, Newcastle Disease can kill three-quarters of the chickens in a flock during an outbreak. Through a partnership with Hester Biosciences, there is now a vaccine that costs just three cents a dose.

~ Mr. Bill Gates at Smallholder-led Agricultural Transformation Summit Andhra Pradesh, India, 17 November 2017

https://www.youtube.com/watch?v=wueDPVw7jsI

Tanzania Plant could be a game changer

Hester Bio in 2018 approved setting up of an animal vaccine manufacturing unit in Tanzania to cater to the African market. The project, which will cost approximately $18 million, will have a capacity to produce 1.5 billion doses of vaccines every year. Estimated revenue from the project is $ 30 million per year at full capacity. Hester will have equity share capital of $4 million, while it has received secured loan and grants commitment worth $14 million from Bill & Melinda Gates Foundation, US. According to Rajiv Gandhi, Managing Director, Hester Biosciences, there is big potential for animal vaccine business in Africa as 80 per cent of the vaccines required in the African market are imported. “Besides the common diseases, there are Africa-specific diseases, which currently remain unaddressed, thereby causing economic losses to poultry and livestock farmers. The project would mainly manufacture vaccines against Africa-specific diseases, besides having the capability as well as the capacity to manufacture a bigger range of vaccines against other commonly occurring animal diseases,” Gandhi said. The construction is scheduled to be completed by January 2020, while the first commercial batch will be produced by November 2020. Hester is also setting up a distribution network in Africa, which will service the backyard farmers as well as the organised poultry and livestock farmers. The board of directors has also approved the new wholly-owned entity named Hester Biosciences Africa Ltd as an export-oriented unit registered under the Companies Act 2002 of Tanzania.

Analyst’s View

Hester Biosciences is fast rising player in the animal healthcare industry. They maybe small but they have achieved phenomenal growth in the past and have managed to do so while improving their margins at all levels. The company is aggressively pursuing international markets with product registrations and marketing and distribution channel setup both in rural India and Africa. It remains to be seen whether Hester will be able to continue their stunning growth trajectory and whether their plans for international expansion and sales pan out as expected. Nonetheless, Hester Biosciences is still a good growth proposition for any investor willing to bet on the animal healthcare sector particularly poultry and cattle.  However valuation is very stretched at current levels and seems to have factored in a lot of the future growth in its price.

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